Pakistan stands at a critical juncture in its energy security journey. With petroleum import dependence exceeding 80 percent and petroleum reserves covering barely three to four weeks of demand, the country remains highly exposed to global supply disruptions and price volatility. In this context, the debate on Strategic Petroleum Reserves (SPR) has gained urgency. Yet the real issue is not merely the creation of reserves, but the framework within which they are developed. Energy security cannot be sustainably achieved through state expenditure and tariff burdens alone; it must be anchored in a competitive market structure that incentivizes investment, expands storage capacity, and ensures reliable supply.
The ongoing debate on SPR has gained renewed momentum in recent weeks, including thoughtful exchanges at industry forums such as the Petroleum Club. These discussions have brought forward a range of proposals for developing strategic storage capacity. Drawing on these perspectives, and building upon practical and policy experience, it is important to contribute to this evolving discourse with a framework that is not only feasible, but also economically sustainable and socially equitable.
Muhammad Arif
The urgency of reform has been sharply reinforced by escalating geopolitical tensions in the Gulf, and the persistent fragility of the Strait of Hormuz. This narrow maritime corridor remains the artery through which a significant share of global oil supply flows. Any disruption, whether through military escalation, sanctions, or asymmetric tactics, rapidly transmits shockwaves across importing economies like Pakistan. Even short-lived disturbances can trigger domestic shortages, price spikes, and macroeconomic instability.
Compounding this exposure is Pakistan’s expanding role in international peace efforts and diplomatic engagement. While this enhances Pakistan’s global stature, it also places the country closer to geopolitical fault lines. In today’s interconnected environment, even a perception of alignment can influence trade flows, financing conditions, and access to energy supplies. Energy security is therefore no longer a purely domestic concern; it is inseparable from foreign policy and national security.
Against this backdrop, the conventional model of SPR i.e. state-funded, guaranteed returns, capital-intensive storage financed through public resources and ultimately recovered via consumer tariffs, appears increasingly untenable. Such an approach imposes a regressive burden in a country where energy costs already weigh heavily on lower-income households. It also risks replicating familiar structural inefficiencies: delayed execution, cost overruns, and long-term fiscal liabilities. Energy security cannot come at the expense of energy justice.
Pakistan’s recent policy experience reinforces this conclusion. Compulsive tariff mechanisms, controlled market structures, guaranteed returns, and regressive taxation instruments such as the Gas Development Surcharge (GDS) and the prolonged collection of Gas Infrastructure Development Cess (GIDC), were introduced with the promise of strengthening the energy infrastructure but the funds collected were never materialized for the purpose. Similarly, refinery upgrade and expansion costs have repeatedly been proposed for recovery through tariff-based mechanisms. Yet, these approaches have largely failed to deliver sustainable outcomes. Instead, they have contributed to circular debt, discouraged efficiency, and reinforced public distrust. The burden has consistently fallen on consumers, particularly the most vulnerable, without commensurate gains in resilience or supply security.
The lesson is clear: policy frameworks built on cost pass-through rather than market efficiency tend to entrench inefficiencies rather than resolve them. Continuing along this path risks repeating the same cycle, new levies, higher tariffs, and limited outcomes.
A more sustainable path lies in reimagining the petroleum market itself. SPR should not be treated as a standalone infrastructure project, but as an outcome of a competitive, liberalized, and investment-friendly downstream sector. Without structural reform, reserve-building efforts will either stall or evolve into another quasi-fiscal burden.
At present, Pakistan’s oil market is characterised by regulated pricing, controlled margins, and a licensing regime that ties storage obligations to Oil Marketing Companies (OMCs). This framework creates a compliance-driven environment in which storage is viewed as a regulatory cost rather than a commercial opportunity. Private investors have little incentive to build capacity beyond minimum requirements, and innovation remains constrained.
A critical reform in this regard is the introduction of a transparent and enabling regime for crude oil trading and import by private sector participants. Highly effective dimension of this approach is the integration of supplier-owned reserves. Instead of Pakistan financing and owning all stored crude, strategic suppliers such as Kuwait for crude oil and Qatar for LNG can be invited to store part of their export volumes within Pakistan under structured, long-term arrangements. Development of petreleum storage by Rusia and Iranian companies may also be possible given the changing diplomatic dynamics. This will enable Pakistan to access strategically located inventory without bearing the financing burden, while also strengthening bilateral energy relationships.
Such a framework would also catalyze investment in storage. If traders are permitted to import and hold crude, storage becomes an economic necessity rather than a regulatory obligation. Tank farms evolve into commercial infrastructure, supporting inventory optimization, and supply smoothing.
Equally important is the introduction of mandatory third-party access (TPA) to all storage infrastructure. Storage yards and terminals must operate on an open-access basis, offering capacity to any qualified market participant under transparent and regulated tariffs. This will prevent monopolistic control, improve asset utilization, and foster genuine competition. The role of Oil and Gas Regulatory Authority is central in enforcing this framework and ensuring market discipline.
With these reforms in place, the private sector would be well-positioned to start with the utilisation of existing petroleum storage capacities at power plants, cement plants, and other industries scattered across the country. The existing storage facilities can be brought to service relatively quickly, financed privately, and leased to multiple users, including traders, refineries, and international suppliers.
However, a critical safeguard must underpin all such arrangements. For any strategic storage, whether held by private traders or foreign suppliers, the state must retain the right of compulsory acquisition of inventory at prevailing market prices in defined emergency situations, including war or war-like conditions. This ensures that in times of national crisis, privately held stocks cannot be withheld or subjected to force majeure claims that undermine national supply security. Pricing at market rates preserves commercial fairness while guaranteeing sovereign access when it matters most.
The effectiveness of this entire model ultimately depends on the quality of the regulatory framework. Creating a system that is effective, self-governing, and self-sustaining requires a genuinely multidisciplinary approach. Law alone cannot design markets. Economics must shape incentives, engineering must define safety and operational standards, finance must structure viable investment models, and digital systems must enable transparency and real-time oversight.
Oil and Gas Regulatory Authority must therefore evolve beyond traditional licensing and compliance functions. It must integrate economic regulation (competition policy and tariff frameworks), technical oversight (infrastructure standards and safety), financial modelling (risk allocation and return structures), and digital monitoring (real-time stock visibility and market behavior tracking). Only such an integrated approach can create a system that is not only enforceable but also adaptive and self-correcting.
In this reimagined framework, the role of the state shifts fundamentally, from investor to enabler and regulator. Rather than building and owning storage infrastructure, the government should focus on establishing transparent market rules, enforcing anti-hoarding provisions, and ensuring that strategic access mechanisms are contractually and legally embedded.
Crucially, this approach avoids passing additional costs onto consumers. Storage infrastructure is financed by private capital; inventory is funded either by market participants or supplier countries; and public expenditure is limited to targeted interventions and regulatory oversight. Energy security is thus achieved without imposing new burdens on those least able to bear them.
At a broader level, embracing competition offers an additional benefit: it can help restore public confidence in energy governance. A transparent, rules-based, and competitive system reduces perceptions of discretionary decision-making, rent-seeking, and policy inconsistency. In a sector historically marked by distrust, this shift alone carries significant value.
The convergence of geopolitical uncertainty, Pakistan’s expanding diplomatic footprint, and structural rigidities in the domestic energy market underscores a fundamental truth: energy security is no longer merely an economic issue, it is a strategic imperative that demands institutional innovation.
Pakistan does not need to fund its energy security, it needs to liberalize it, structure it, and regulate it intelligently, honestly, professionally, transparently and fearlessly.
It is time to move beyond the failures of tariff-driven solutions and give competition a fair chance, not only to deliver energy security, but also to restore efficiency, resilience, and credibility in governance through a Governance 5.0 approach grounded in transparency, technology, and market-driven accountability.
( The author is:Fformer Member (Gas), OGRA; Managing Partner at Arif & Associates, a boutique petroleum and business-law consultancy; and a thought leader in energy, governance, regulatory reform, and consumer rights advocacy. Email: [email protected]| Cell: 0333 5191381
